Relief for some, but not all 'underwater' homeowners

Friday

New rules for a national refinancing program could offer a lifeline to some of the estimated 234,000 Bay State homeowners who owe more on their mortgages than their homes are worth.

(Embargoed until week beginning Nov. 6.)

New rules for a national refinancing program could offer a lifeline to some of the estimated 234,000 Bay State homeowners who owe more on their mortgages than their homes are worth.

U.S. regulators will ease eligibility rules for a federal program allowing some homeowners to refinance at current record-low interest rates if their mortgages are backed by government-managed mortgage financing companies Fannie Mae and Freddie Mac.

Many so-called underwater borrowers do not otherwise qualify for refinancing, leaving them unable to lower their payments, sell or get equity out of their homes, and sometimes at the brink of foreclosure. President Obama announced changes in the refinancing program Oct. 24, calling the problem a burden for middle-class families and a drag on the economy.

“It’s a big change,” said Karl “Chip” Case, professor emeritus of economics at Wellesley College. “I think it really matters. People have been saying we ought to do that for some time.”

However, the new rules will not help all residents with lopsided mortgages.

The Federal Housing Finance Agency said the refinancing program helped 894,000 borrowers as of Aug. 31 and estimated that number could double under the new guidelines. But nationwide, 10.9 million mortgages belong to people whose debt outweighs their home value, or nearly a quarter of all mortgages, according to CoreLogic, a firm that analyzes housing and financial data.

“I’m sure that all of our members get calls on a regular basis that they can’t help,” said Elizabeth Phelan, chairwoman of the Mass. Mortgage Bankers Association. “If this allows them to help a wider percentage … it’s definitely a positive.”

Property values plunged after the national real estate bubble burst, starting in 2006, fueling the upside-down mortgage problem for many homeowners.

In Massachusetts, the value of the average single-family home has dropped about 11 percent since fiscal 2007, from $406,600 to $361,600, according to the Department of Revenue’s Division of Local Services. Statewide, overall assessed residential values have dropped 10 percent in the same period.

Among the hardest hit communities is Brockton, where the value of an average single-family home has nosedived a third since fiscal 2007, as well as Taunton, Randolph, Malden and Raynham. But the effects have varied widely across the state.

Western Massachusetts saw overall residential values remain steady or even increase. Needham, Cohasset, Brookline and Weston were also among eastern Mass. towns that saw gains.

Overall, this state lags behind the national rate of lopsided home debt and values. About 15.7 percent of the 1.5 million mortgages in the state were underwater in the second quarter of this year, CoreLogic said. Another roughly 53,000 Bay State borrowers were near the brink.

Underwater mortgage rates elsewhere are as high as 60 percent in Nevada and as low as 6.3 percent in New York, CoreLogic said.

Overall, it is clear this and other problems continue to plague the Bay State housing market. While home sales were up for a third straight month in September, total sales this year could be the lowest the state has seen since 1991, according to figures from the Warren Group, publisher of Banker & Tradesman.

The key change that Obama recently announced for the Home Affordable Refinance Program, or HARP, would open up the program to people who are more than 25 percent underwater on their mortgages. Until now, such homeowners have been ineligible.

“Lifting the cap … helps a lot in many of the communities in Massachusetts where people are underwater greater than that,” said Aaron Gornstein, executive director of the nonprofit Citizens Housing and Planning Association.

The changes will only help borrowers who have not made late payments in the last six months or more than one in the past year. The Federal Housing Finance Agency said these homeowners have shown “a capacity and commitment” to make good on their debt.

HARP also will waive or lower certain fees for borrowers who refinance into shorter-term mortgages. Lenders expect details from the government in mid-November.

The new terms also would provide more incentives for banks and lenders to participate, Gornstein said. The changes would waive some terms that lenders must commit to in making loans owned or guaranteed by Fannie and Freddie. In most cases, a home appraisal would no longer be required before refinancing.

Borrowers also must have a mortgage owned or backed by Freddie Mac or Fannie Mae as of or before May 31, 2009. Homeowners who are unsure can check online at fanniemae.com/loanlookup or freddiemac.com/mymortgage.

Laurie Cadigan, president of the Mass. Realtors Association, said while she’s waiting to see more details, the changes sound promising.

“Our position is that anything the government can do to sort of assist people who are struggling with making their payments is a wonderful thing,” she said.

Case cautioned the expanded financing program is not a cure-all. There are an estimated 1.6 million loans in the process of foreclosure that these changes will not help, he said.

“It’s not going to clear through the whole backlog,” Case said.

Gornstein said the changes help, but only address one piece of the housing market’s problems.

“Overall, the Obama administration has been trying a lot of different things, but it seems after three years of the crisis that more aggressive action is needed because there’s still a major problem in Massachusetts and around the country,” he said.

(David Riley can be reached at 508-626-4424 or driley@wickedlocal.com.)

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